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Positions Unwinding

Escalation of Covid-19 cases continue to dominate the headlines, but the US Fed is still consistently reassuring the market.


The EUR ($1.1439) hovered near four-month highs against the Dollar on Monday as investors held on to hopes that European leaders would break a deadlock and hammer out an economic rescue deal as their marathon summit reached a record length. EU leaders were at an impasse over a proposed 750 billion euro ($858.30 billion) recovery fund, which is supposed to be raised on behalf of them all on capital markets by the EU’s executive European Commission. That would be a historic step towards greater fiscal integration for the union, but a group of “frugal” wealthy north European states were pushing for a smaller fund and seeking to limit how payouts are split between grants and repayable loans. The weekend meeting was extended till today as a result.

The Dollar is broadly weak as investors maintained strong risk appetite, betting on more stimulus not just from Europe but also the United States.

Several mega-cap technology stocks continued to underperform, taking note of the disappointing price action in Netflix (NFLX 492.99, -34.40, -6.5%) as a possible precursor if they fail to live up to elevated expectations. Shares of Amazon (AMZN 2961.97, -37.93, -1.3%) fell 7.4% this week, including Friday’s 1.3% decline.

The US stock indices, especially the tech-heavy Nasdaq, tried to sell-off again, hitting an intraday low of -0.75%, 10,421.21, before recovering steadily into the close to frustrate bears yet again.

A piece of critical information that highlights the resolve of the Fed almost went unnoticed by the mainstream press, that is the Fed is beginning to talk about letting inflation run above its 2% target. Fed Governor Lael Brainard said over the weekend that “with inflation exhibiting low sensitivity to labor market tightness, policy should not preemptively withdraw support based on a historically steeper Phillips curve that is not currently in evidence.”

By de-emphasizing the Phillips curve, the Fed loses its primary inflation forecasting tool. Instead of an inflation forecast, the Fed will rely on actual inflation outcomes to determine the appropriate time to change policy.

This is a roundabout way of saying Modern Monetary Theory has arrived and officially being discussed. The U.S. government has indeed embraced this idea with open arms and have unleashed the spigots of U.S. liquidity during this crisis, in a response much like the financing during World War 2, but with much more aggression and swiftness in reacting. Hard assets like Gold will continue to outperform in time to come.



Britain said on Saturday it was pausing its daily update of the death toll from the virus after the government ordered a review into the calculation of the data over concerns the toll might have been exaggerated.

Britain has been the European country worst hit by the virus, with an official death toll of more 45,000. But the government has said international comparisons are misleading because countries record virus deaths differently.

Health Minister Matt Hancock on Friday ordered a review into the PHE’s reporting after the academics said patients who tested positive for coronavirus, but were successfully treated, would still be counted as dying from the virus “even if they had a heart attack or were run over by a bus three months later”.

COMMENTS/IMPACT: There is an ongoing narrative in the U.S. and UK that virus cases are inflated and that the actual numbers might not be “as bad as reported”. At the moment, there is no telling if this is a perverse ploy to spin the narrative so that governments can get away with their hubris, or if it’s indeed the case. Nonetheless, we believe that markets will take this as a reason to power on higher. Right now, “inflated data and its revision” is another factor to watch in addition to 1. Vaccine Progress and 2. Mortality Rates. These 3 factors will be a large driver of risk appetite and risk currencies like AUD will sing to its tune.


EU leaders stood at an impasse on Sunday after three days of haggling over a plan to revive economies throttled by the COVID-19 pandemic, but the chairman of their near-record-length summit urged them to make one last push on “mission impossible”.

Charles Michel reminded the 27 leaders of the European Union over dinner in Brussels that more than 600,000 people had now died as a result of the coronavirus around the world, and said it was up to them to stand together in the face of an unprecedented crisis.

The leaders are at odds over how to carve up a vast recovery fund designed to help haul Europe out of its deepest recession since World War Two, and what strings to attach for countries it would benefit.

Diplomats said it was possible that they would abandon the summit and try again for an agreement next month. On the table is a 1.8-trillion-euro ($2.06-trillion) package for the EU’s next long-term budget and recovery fund.

Thematic Context: “EU leaders’ views on a mass stimulus plan remained “diametrically different”, Czech Prime Minister Andrej Babis said on Friday. The 27 EU heads are struggling to reach consensus on the 2021–27 budget, proposed at above 1 trillion euros, and a linked new recovery fund worth 750 billion euros, meant to help rebuild southern economies most affected by the pandemic.Reuters 17th July 2020

COMMENTS/IMPACT: The EUR ($1.1439) hovered near four-month highs against the Dollar on Monday as investors held on to hopes that European leaders would break a deadlock and hammer out an economic rescue deal as their marathon summit reached a record length. If a reasonable deal is made, EUR will rally to new highs as it shows EU countries are able to put aside their differences when it comes to it. If it’s going to be pushed forward, sound guidance is needed to reason with markets for EUR sentiment ro remain steadfast at these levels.


WHO reported a record increase in global virus cases for the second day in a row, with the total rising by 259,848 in 24 hours.

The biggest increases reported on Saturday were from the United States, Brazil, India and South Africa, according to a daily report. The previous WHO record for new cases was 237,743 on Friday. Deaths rose by 7,360, the biggest one-day increase since May 10. Deaths have been averaging 4,800 a day in July, up slightly from an average of 4,600 a day in June.

Hong Kong reported more than 100 new virus infections on Sunday, reaching a record as the government plans to extend mandatory wearing of masks to more public spaces.

Thematic Context:

“The virus situation is still severe and new strains seem to be developing. A large part of the world is in the midst of battling the 2nd and 3rd waves, the last week of July and first 2 weeks of August will be crucial to watch for mortality rates. Any spikes in mortality rates might spook markets and dampen risk sentiment.”

— 13th July 2020

The virus situation remains fluid, keep an eye on mortality rates and vaccine developments, those will be the main drivers of sentiment in the weeks ahead.” — 14th July 2020

COMMENTS/IMPACT: Markets remained unfazed by the spike in cases and mortality rates as Congress is set to begin debating a new aid package this week, as several states in the country’s South and West implement fresh lockdown measures to curb the virus. As we have been saying, “print the money, or trigger the revolution”, we have watched this movie before and know where it’s heading. Hard Assets (Gold & Silver) and commodity currencies will do well (AUD).


The fierce battle between bulls and bears continues, with both sides receiving some fundamental fuel to back up their case this week. Driving the positive narrative were renewed hopes for a successful virus vaccine, after Moderna announced its latest trials produced a “robust” immune response. Meanwhile, more than half of all US states have now made it mandatory to wear face masks in public, calming fears about a continued acceleration in infections.

As for the bears, they drew strength from high-frequency indicators and even some Fed officials suggesting the US recovery is “levelling off”. Several states have paused their reopening plans or put them into reverse to bring the outbreak under control, with California being the latest to shut down bars, indoor restaurants, gyms, and other services. Credit card data suggest this is already impacting spending, and the fear is that it could spark another wave of layoffs.

All told, most charts are still trapped in ranges.


OVERALL SENTIMENT: Position unwinding of those being invested in tech stocks vs old school stocks seem to be running its course. The escalation of Covid-19 cases continues to dominate the headlines, but the US Fed is still consistently reassuring the market that it remains resolute in keeping policies as loose as they possibly can for as long as it takes.

Be on the side of unlimited printing of money.



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